UK marks 15 years of success with minimum wage

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UK marks 15 years of success with minimum wage


August 2nd, 2013 | Author: VD



Yesterday, the UK marked 15 years of its national minimum
wage, a policy that has not only won over all doubters across the political
spectrum in this country but was also voted by experts as the most successful
policy in the last thirty years.

From The Financial Times (do check out the Resolution Foundation
report as well):


Happy birthday, national minimum wage

By John McDermott

A few months into Tony Blair’s government, The Economist argued that “coming
up with a minimum wage that will not seriously harm the economy, and destroy
jobs, will require the wisdom of Solomon – or extraordinary luck”. Today the
National Minimum Wage Act is 15 years old. There are many cases of bad policy
making but this is a case of the good kind.

The minimum wage has been a success: all but ending exploitatively low pay
while having a minimal impact on overall employment, according to research. A
poll of political scientists by the Institute for Government found it to be the
most
admired policy of the past 30 years. The Economist was wrong. Why it worked
carries lessons for today, on both sides of the Atlantic.

For more on the economics, check out the Resolution Foundation’s excellent report. What I find equally interesting is the story
of how the idea of a minimum wage went from politically suicidal in the 1990s to
an accepted part of British life.

In the 1992 general election, Labour ran on a minimum wage – and was battered
by the Conservative government, which said that it would cost up to 2m jobs. (It
wasn’t until Michael Portillo became shadow chancellor in 2000 that the Tories
changed their position.) In 1995 the Confederation of British Industry said a
minimum wage would have “major problems” for wage structures. Two years later,
it was in favour. And these days most employers when surveyed say they support
the policy.

What happened? The Institute for Government has a case study from which two
aspects stand out.

First, supporters of the NMW spent time and effort winning the argument. In
part, this was about waiting for the embers of 1980s industrial relations to
cool. But it also involved a mixture of high-minded research and low politics.
The reality of low pay and the myths of the worst employment effects were
exposed, and (a decade before bank bashing became a national blood sport) the
Labour party went after the “fat cats” in businesses such as utilities to
increase public support for a minimum wage.

Second, the Low Pay Commission, the statutory body charged with setting the
minimum wage rates, has been a great success. That Britain has no German-style
economic institutions is an oft-repeated complaint. But the LPC has
representatives from unions and business, as well as academic experts. Its
mandate is simple and flexible. Much of the preparation for this was done before
Labour took power in 1997.

The LPC also did the hard work: commissioning pages of analysis and visiting
hundreds of businesses across the country. Political interference was minimal
and the chairman demanded unanimity on decisions. The LPC has been sensitive to
the broader UK economy, limiting NMW rises when the financial crisis hit.

The economy has changed since the mid-1990s. Yet there are still insights to
be gleaned from the tale of the NMW. In the US, the botched McDonald’s effort to
estimate a budget for employees has been criticised by people who can do
mathematics. But by highlighting ignorance of the reality of low pay, it is also
a reminder that the argument for a higher federal minimum wage has not been won
by its supporters.

In Britain there is a lot of wonkish talk on both side of the political
divide about “institutions”. This reflects academy vogue and the fact that there
is not a lot of money and public support for more state spending. In his new
book, Anthony Painter, the centre-left author, argues that the Labour party must
dedicate itself to building “sustainable” institutions. It is an idea that is
familiar to Conservative fans of Edmund Burke.

The minimum wage is a sign that lasting popular institutions can still be
built. But it also shows that this can take consent, evidence, time and an awful
lot of effort.

Happy birthday, NMW.

Void
Decker

* The writer is a born-and-bred
Singaporean currently residing in London with his lovely wife. Despite having a
rather solemn face and reserved disposition, he has much to say on
socio-political issues that continue to plague his beloved homeland. He blogs at
http://www.voiddecker.com.


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